Skills Exercises

Knowledge and Understanding (AO1)

Cambridge International AS & A Level

Economics 9708
For examination from 2023
© Cambridge University Press & Assessment 2022 v1
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Contents
Introduction ................................................................................................................................4
Knowledge and understanding (AO1) ......................................................................................5
Exercise 1: Key terms and definitions ...................................................................................5
Exercise 2: Understanding formulas ...................................................................................18
Exercise 3: Understanding and explaining syllabus content ............................................. 21
Skills Exercises

Introduction
Cambridge International AS & A Level Economics attracts a variety of learners from many different
backgrounds. For some learners Economics is a new subject and an opportunity to explore an area of study
that interests them, while developing a set of transferable skills. Other learners have previously studied
Economics and are looking to continue developing their knowledge of the subject. Either way, the study of
Economics allows learners to experience the diverse and dynamic world within which different economies
exist and gain the knowledge needed to understand how governments and markets operate within real
contexts, analyse alternative courses of action and develop the ability to make justified recommendations.

Skills and why they are important?

Skills are the key to success. The performance of candidates in Cambridge International AS & A Level
Economics exams have shown a range of areas where improvement would be helpful. These areas of
improvement tend to centre around the assessment objectives (AOs) of the course and we have addressed
these three AOs in three Skills Exercises booklets.

• Knowledge and Understanding (AO1)

• Analysis (AO2)
• Evaluation (AO3)
The skills exercises in these booklets make use of examination questions and include worksheets to help
skills development and incorporate suggested teaching approaches, such as discussion, structured support
and writing in sequence. They do not attempt to cover all possible aspects of the examinations, only those
problem areas which have presented consistently over time.

How will these skills be developed?

The Skills Exercises booklets aim to help learners develop skills in:
• using knowledge and understanding to answer examination questions
• using the context given in the examination to make answers relevant
• developing skills of analysis – including understanding analysis, identifying analysis and developing
analysis skills
• building evaluation skills – including understanding limitations and imperfections, separating analysis
and evaluation and making reasoned conclusions.
The skills exercises provide suggestions so you can have confidence that the materials you prepare and use
in the classroom are building skills and resilience in your learners. This document should be used alongside
the other teaching and learning resources provided on the School Support Hub at:
www.cambridgeinternational.org/support

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 Skills Exercises

Knowledge and understanding (AO1)

Exercise 1: Key terms and definitions
The skill of knowledge and understanding requires learners to show knowledge of the syllabus
content as well as recalling facts and definitions. AO1 Knowledge and Understanding requires
learners to:

• Show knowledge of syllabus content, recalling facts, formulae and definitions.

• Demonstrate understanding of syllabus content, giving appropriate explanations and
examples.
• Apply knowledge and understanding to economic information using written, numerical and
diagrammatic forms.

Activity 1: Economic terms

There are some economic terms that look similar and learners tend to confuse one with another.
Understanding these terms and using them in the right context is essential to demonstrate knowledge
and understanding.

Give learners Worksheet 1: Economic terms and ask them to define the terms.
Learners could peer assess each other’s work using the answer sheet.
Lead a group discussion to ensure understanding of the terms and definitions.
Challenge learners to apply the terms to the correct context.

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Skills Exercises

Worksheet 1: Economic terms

Define each economic term in the boxes provided.

1.
Absolute poverty Relative poverty

2.
Actual production Production potential

3.
Ad valorem tax Specific tax

4.
Asym m etric inform ation Moral hazard

5.
Devaluation of currency Depreciation of currency

6.
Direct taxes Indirect taxes

7.
Econom ic grow th Econom ic developm ent

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 Skills Exercises

8.
Econom ies of scale Increasing returns to scale

9.
Equality Equity

10.
Free goods Econom ic goods

11.
Free trade area Custom union

12.
Governm ent borrowing National debt

13.
Inflation Disinflation Deflation

14.
Internal value of m oney External value of m oney

15.
Kinked dem and curve The Kuznets curve

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Skills Exercises

16.
Laffer curve Lorenz curve

17.
Liquidity trap Poverty trap

18.
Market equilibrium Consum er equilibrium

19.
Money Cheques Credit cards

20.
Multiplier Accelerator

21.
Norm al goods Inferior goods Necessities

22.
Price elasticity of dem and Price elastic dem and

23.
Prim ary incom e Prim ary sector

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 Skills Exercises

24.
Production Productivity

25.
Profits Profitability

26.
Public goods Private goods

27.
Qualities of m oney Functions of m oney

28.
Real incom e Disposable incom e

29.
Secondary incom e Secondary sector

30.
Social cost External cost

31.
Tax rate Tax am ount

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Skills Exercises

32.
Term s of trade Balance of trade

33.
Trade creation Trade diversion

34.
Trade deficit Budget deficit Current account deficit

35.
Transfer paym ents Transfer earnings

36.
Universal benefits Means tested benefits

37.
X-efficiency Dynam ic efficiency

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Skills Exercises

Exercise 2: Understanding formulas

The skill of knowledge and understanding requires learners to demonstrate knowledge of the syllabus
content, recalling facts, formulas and definitions.

Activity 1: Formulae
Give learners Worksheet 2: Formulae and ask them to provide the correct formula for each
economic term.

Follow this up with a discussion to ensure understanding and any misconceptions.

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 Skills Exercises

Exercise 3: Understanding and explaining syllabus content

The skill of knowledge and understanding requires learners to demonstrate understanding of the
syllabus content, giving appropriate explanations and examples.

Activity 1: Identifying correct and incorrect statements

Give learners Worksheet 3: Identifying correct and incorrect statements.

Learners identify which statements are correct and which are incorrect, explaining their choice in each
case.

Lead a group discussion to embed learners’ knowledge and understanding of the syllabus content.

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Skills Exercises

Worksheet 3: Identifying correct and incorrect statements

For each of the following statements, identify which ones are correct and which are not. Explain your
choice in each case.

1. An outward shift in production possibility curves (PPC) may initially raise unemployment.

2. Buying shares of a profitable company is considered to be an investment and raises Aggregate

Demand (AD).

3. A falling inflation rate does not mean that the price level is falling as well.

4. There is a higher number of people in employment in a country where the unemployment rate is
low compared to a country with a high unemployment rate.

5. For the price level to be stable, the rate of inflation must be stable.

6. All goods provided by the government are public goods.

7. Public goods must only be provided by the government.

8. Roads and motorways are examples of public goods; thus, they must be provided by the
government.

9. Higher income taxes force consumers to consume less and save more.

10. A product has price elastic demand (PED) when a rise in its price causes a fall in its quantity
demanded.

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 Skills Exercises

11. A perfectly competitive firm maximizes profits where its sale price equals the marginal cost of the
last unit produced.

12. The higher the Gini Coefficient, the greater would be the income inequalities.

13. According to the law of diminishing returns, adding more and more variable inputs will result in
falling output.

14. Lowering income taxes and lowering interest rates are demand side tools as well as supply side
tools.

15. Rising marginal cost leads to a rise in average cost.

16. A comparatively higher inflation rate in country X than country Y necessarily means that the price
level in country X is higher.

17. Minimum price should be imposed on demerit goods and maximum prices should be imposed on
merit goods to change their consumption to the optimal level.

18. According to Keynesians, a market economy is inherently unstable and the government must play
a stabilising role through monetary and fiscal policies.

19. A business should shut down immediately if it is incurring a loss.

20. Persuasive advertisement can help prevent a market failure.

21. Tax revenues rise when tax rates are raised.

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Skills Exercises

22. Increased government expenditures financed by borrowing from the central bank raises the
money supply by an amount higher than the increase in government expenditures.

23. Decreasing the period when the unemployed are eligible for welfare payments will help reduce the
natural rate of unemployment.

24. According to Phillips curve, it is possible to achieve low inflation and high economic growth at the
same time.

25. The exchange rate should be raised and interest rate should be decreased to reduce
unemployment.

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